The ECB’s Experience of Monetary Policy in a Financially Fragmented Euro Area

This paper examines the various stages of the sovereign debt crisis of the euro area, the ensuing re-segmentation of several financial market segments and the disruptions in the transmission of monetary policy impulses. The paper provides the first systematic attempt to describe the European Central Bank’s (ECB’s) monetary policy during these 6 years of a mutating crisis. Its main contribution is to merge an analysis of economic and financial developments with that of the flaws in the Economic and Monetary Union’s institutional framework and governance. Although both interest rate and bank lending channels were severely weakened during the crisis, the transmission of the monetary policy stance did not break down, partly due to the increased intermediation role of the ECB.